Frequently Asked Questions
What is a "Value Spread"?
The Value Spread is the difference in valuation (usually Book-to-Price) between "cheap" stocks and "expensive" stocks. A wide spread means cheap stocks are historically very cheap compared to the market. This dashboard tracks value spreads using multiple definitions including Book-to-Market, Earnings-to-Price, Cash Flow-to-Price, and Dividend-to-Price ratios.
Does a wide spread mean I should buy Value stocks?
Not necessarily. While historically wide spreads have been associated with higher subsequent returns for value stocks, there is no guarantee. Spreads can stay wide for years (as they did from 2017-2020) or widen further. The value premium has experienced extended drawdowns lasting a decade or more. This is a tool for context and research, not a timing signal.
What is the Fama-French Three-Factor Model?
The Three-Factor Model, developed by Eugene Fama and Kenneth French in 1993, explains stock returns using three factors: the market risk premium (MKT-RF), the size premium (SMB, Small Minus Big), and the value premium (HML, High Minus Low book-to-market). It extended the Capital Asset Pricing Model (CAPM) by showing that small-cap and value stocks tend to outperform over time.
What is the Five-Factor Model?
The Five-Factor Model (2015) adds two more factors: RMW (Robust Minus Weak), which captures the profitability premium, and CMA (Conservative Minus Aggressive), which captures the investment premium. Companies with high profitability and conservative investment tend to have higher returns. Together, the five factors explain a larger portion of cross-sectional stock return variation than the original three factors.
Why is the data only updated monthly?
The source data from the Kenneth R. French Data Library is updated on a monthly cadence, typically a few weeks after each month ends. This ensures the data is carefully constructed and accurate. The portfolios are formed annually using June market equity and fiscal year-end book values, with monthly returns calculated throughout the year.
How are "Small" and "Big" defined?
Stocks are classified as Small or Big using the NYSE median market capitalization as the breakpoint. All NYSE, AMEX, and NASDAQ stocks with available data are then sorted into portfolios. Using the NYSE median (rather than the overall median) prevents the "Small" universe from being dominated by tiny micro-cap stocks that are difficult to trade.
How are "Value" and "Growth" defined?
Value and Growth are defined using Book-to-Market (B/M) ratios. Stocks with high B/M ratios (cheap relative to book value) are classified as Value; stocks with low B/M ratios (expensive relative to book value) are classified as Growth. The breakpoints are the 30th and 70th percentiles of NYSE B/M ratios.
What does the percentile rank mean?
The percentile rank shows where the current value of a metric falls relative to its entire historical distribution. A percentile of 90% means the current value is higher than 90% of all historical observations. For value spreads, a very high percentile may indicate value stocks are expensive relative to history, while a very low percentile may indicate they are cheap.
What is a Z-Score in this context?
The Z-Score measures how many standard deviations the current value is from its historical mean. A Z-Score of +2 means the current value is 2 standard deviations above the mean, which is statistically unusual. Z-Scores beyond +/-2 are generally considered extreme. This helps identify whether current conditions are within normal historical ranges.
Can I download the data?
Yes. Each time series chart includes a download button that lets you export the data as an Excel spreadsheet (.xlsx), a PNG image, or a PDF. You can also download a comprehensive PDF report from the Factor Analytics page. The original source data is freely available from the Kenneth R. French Data Library.
Is this investment advice?
No. This website is for educational and informational purposes only. Factor investing involves significant risks, including extended periods of underperformance that can last a decade or more. The historical factor premiums shown on this site do not guarantee future returns. Always consult a qualified financial advisor before making investment decisions.
How can I contact you?
You can reach us through our Contact page. We welcome questions about the data, methodology, feature requests, and bug reports. Please note that we cannot provide investment advice or personalized financial guidance.